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Tobacco(Cigarette) Industry Analysis

using Porter’s five force model andPESTEL framework

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Porter’s Five Force Model

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Bargaining Power of Suppliers

• Tobacco companies in India are big players and they have direct

access to the distribution channel , which does not give a very high

bargaining power in the hands of the suppliers.

• Even though tobacco comes under state jurisdiction, the

Government of India plays an important role in the growth anddevelopment of the tobacco industry.

• The Tobacco Board’s attempts to reduce fluctuations in auction

prices have met with mixed success.

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Bargaining Power of Buyers

• Consumers in India are addicted to smoking cigarettes/bidis and

chewing tobacco , which makes the products inelastic and hence

the bargaining power is low when it comes to the consumers.

• The level of economy also determines the buying power of the

consumer since if there is a drastic fall in the economy , consumersreduce their costs by shifting to cheaper brands

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Threat of Substitutes

• There are various substitutes coming in the market in lieu of the

health concerns involved with smoking like nicotine patches,

electronic cigarettes, herbal cigarettes etc.

• There are no major substitutes for tobacco since people who

consume it are generally addicted to it and hence would not wantto opt for any other alternative.

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Industry Rivalry

• Bidi is tobacco rolled in a tendu leaf and tied by a string. Almost 80

percent of bidi tobacco comes from Gujarat, and the rest comes

from Karnataka. Bidis account for over 50 percent of total tobacco

use, compared with less than 20 percent by the cigarette segment.

• Currently, there are four major cigarette manufacturers in India: ITCLimited (formerly Imperial Tobacco Co.); VST Industries Limited

(formerly Vazir Sultan Tobacco Co.); Godfrey Philips India Ltd; and

GTC Industries Limited (formerly Golden Tobacco Co., Ltd.).

• There are a couple of smaller-sized cigarette companies with

manufacturing facilities. As they lack the necessary marketing

infrastructure, they produce cigarettes for the large cigarette

companies on a sub-contractual basis.

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PESTEL Framework

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Political factors

• Increase in taxes – They are charged 35-50% of their retail price

• The new Government is trying to pass a ban on the sale of loose

cigarettes.

• The government may promote an awareness campaign that

highlights the significant health hazards that cigarettes pose tosmokers.

• Restriction: There are various restriction on tobacco industries

which is mentioned in tobacco act 2003 thus, such kind of policies

plays an important role in decreasing the percentage of tobaccoconsumption.

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Economic Factors

• India among top three producers in the world.

• Among top 10 exporters.

• 2.3 million people depend on this sector for livelihood.

• Tobacco demand in India is high with roughly 10% of world’s

tobacco smokers in India.

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Social Factors

• Growing public concern against increasing consumption oftobacco.

• Restrictions by government has made the promotion oftobacco brands almost impossible.

• Prohibition of smoking in public places.• Statutory warnings must cover at least 85% of the surface of

the pack, of which 60% must be pictorial and the remaining25% contains textual warnings in English, Hindi or any otherIndian language. Mandatory health warning issued in publicinterest in cinemas

• Health warning advertisements on the television promoted bythe Ministry of Health

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Technology

• Increase the cost of machinery used for making of cigarettes

and bidis and involvement of fully automated machines

• Manufacturers have positioned e-cigarettes as a new

technological advancement as e-cigarettes does not havecarcinogens and therefore is not as unhealthy as a cigarette.

• India is the second- largest producer of tobacco after China in

the World. However, it holds a meagre 0.7 % share of the $30-

billion global trade in tobacco.

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Environmental and Legal Factors

• This industry is one of the most criticized industry because of the

alleged child labor involved. Labour law violations in tobacco are

prevalent with the alleged involvement of child labour.

akash ppt

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